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Interest rate commentary for 13 Feb – 17 Feb 2017

Bond yields were reasonably stable around the globe, unless you are referring to those in Italy or Australia. In Italy, 10 year bond yields went down whereas in Australia they went up. Even in the US, yields barely moved as Janet Yellen gave two speeches, both identical but on separate days, hinting at the need to normalise the US official rate, lest a delay lead to the need to raise rates “rapidly”. Waiting too long would be “unwise”.

CHART OF THE WEEK

Talk about kicking the can down the road…and then some. The Europeans are borrowing like there’s no tomorrow …who’s gonna be holding the debt present when the music stops playing?

c
Close △Week Week
High
Week
Low
Cash Rate%   1.50
90day Bank Bill% 1.78 0.01 1.78 1.78
Aust 3y Bond%* 2.06  0.10 2.10 1.95
Aust 10y Bond%* 2.83  0.11 2.86 2.72
Aust 20y Bond%* 3.45  0.11 3.46 3.36
US 2y Bond%   1.19   0.00  1.25  1.19
US 10y Bond% 2.42  0.01 2.49 2.42
US 30y Bond% 3.02  0.01 3.08 3.02
iTraxx 88.1 -1.50 88.5 87.0
$1AUD/US¢ 76.70 -0.08 77.32 76.18
* Implied yields from March 2017 futures

So, all in all, the week was a fairly non-eventful one. How long can this last? Probably not long. Stronger-than-expected US CPI and retail sales figures suggest pressure is building up and eventually all that newly created US and European money will end up chasing too few goods.

Deposit-taking institutions have been reluctant so far this year to make a lot of changes to term deposit rates but this appears to have changed this week. There have been quite a few changes, mostly in the form of reductions but there were couple of increases and one of them was quite large. See our term deposit tables for a comparison of rates from over forty institutions.

In the ASX-listed notes space, NAB announced the margin above BBSW for its latest ASX-listed note. The offer has not had any effect on other notes and ASX-listed hybrids as median trading margins fell, even as yields generally rose in other interest rate markets. Perhaps the gap between these two types of securities and other, more traditional options remains too large.

Corporate bond issuance eased off but conditions are now well-and-truly back to normal. Asset-backed security (ABS) issuance led the way, with two offerings, one of them a $2.15 billion whale.

QTC has been active again in the semi-government market, although the use of the word “active” can only be used in a relative sense in this sector.

We hope you enjoy reading this week’s YieldReport.

January 2017 monthly interest rate commentary

Bond yields reversed direction, with larger falls at the short end. While the Trump reflation scenario lost momentum and caused long end yields to pause and then drop back, local data ensured short term yields were less likely to factor in official RBA rate rises during 2017/2018. Even a record Australian bond sale worth $9.3 billion failed to dent demand and by the end of the month, Australian 3 year bonds were.…Click here to read more

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